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how does small denomatons coins given by the gobernment affect liquidity
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- Explain the concept of Zero lower bound and liquidity trap.Which household is likely to have a higher MPC, a low income household or a high income household? Why? What is the opportunity cost of holding money? How is k related to the velocity of money?Assume a closed economy described by an IS-LM model. Explain what is meant by a liquidity trap, how such a condition can arise and what policies can be implemented to get out of it.
- Explain the micro factors and macro factors which affect the cost of money? What are the conclusions of Beta stability tests and Tests based on the slope of the SML? (hint: refer to Ch 25 in the textbook) Suppose Asset A has an expected return of 10 percent and a standard deviation of 20 percent. Asset B has an expected return of 16 percent and a standard deviation of 40 percent. If the correlation between A and B is 0.35, what are the expected return and standard deviation for a portfolio comprised of 40 percent Asset A and 60 percent Asset B? 1) Calculate what is called Beta, , from the table below (hint : use excel for calculation for beta) and then 2) make the equation with beta and intercept to calculate the expected return of i asset. (hint; use SML equation in Chapter 25 and rRF=5%, M =9% ) Year M i 1 16% 19% 2 -6% -11% 3 12% 17% 4 14% 19% Calculate the expected return of portfolio and standard deviation of portfolio…Do you agree with the idea that the contemporary world is characterized by high liquidity? Why or why not?Explain the liquidity trap. Do you think that the theory accurately describes the events after the Great recession
- Consider a closed economy where the goods and money markets are described by the following relationships: C = 200 + 0.9(Y – T) 1 = 400 – 15r M = 200 + Y – 100r G = 150 T = 100 M = 2000 P = 2 Where Cis planned consumption, / is planned investment spending, Tis government tax revenues, G is government purchases, M is the money supply, P is the price level and r is the interest rate. Department of Economics a) Derive the two expressions for the IS and LM equilibrium relationships respectively. Sketch a graph of the two relationships. b) Calculate the equilibrium value of output Y and interest rate r (round off your answers to one decimal point). Compute also the level of consumption and investment spending in equilibrium and check whether the actual level of spending matches the equilibrium level of output.Q. Compare Keynes Liquidity Preference Theory with the classical quantity theory of money.Explain the Keynesian Concept about Money?